Game Change Engulfs Overseas Growth At DeNA

Never underestimate the speed of change in the mobile gaming business.

Isao Moriyasu, president of DeNA Co., unveils the company’s new logo during a news conference in Tokyo on Jan. 10.

Bloomberg News

Just three months ago, social game site operator DeNA Co. reported its overseas revenues had grown for the sixth straight quarter to an eightfold increase from a year earlier and that its overseas operations logged a profit in June. Accustomed to growth trajectories holding steady, the company said that its overseas operations would turn profitable in the July-September quarter. Instead, revenues fell, losses widened, and its president warned of widening losses this quarter. Mobage West would not turn profitable until the January-March or April-June quarter, he said.

The company blamed a shortage in new hits, and said it is now working to expand its offering of different types of games, instead of just its mainstay card battle games.

In a further blow to morale, Clive Downie, who headed DeNA’s U.S. and European division, became social game services provider Zynga Inc.’s chief operating officer last week.

Until this past quarter, it looked like DeNA would prove naysayers wrong. Bolstered by hits like “Rage of Bahamut,” “Marvel: War of Heroes,” and “Blood Brothers,” DeNA showed how savvy promotion, data analysis, and a pool of 30 million users could generate revenues. The company still ranked the world’s No.6 publisher by monthly game revenue on Google Inc.’s mobile operating system in September, according to App Annie.

But the slowdown – both abroad and at home — comes at a bad time. Game developers are taking a hard look at the advantage of using DeNA’s Mobage social games site, after hits such as GungHo Online Entertainment Inc.’s “Puzzle & Dragons” proved that even in Japan, you can do well without a network built by DeNA or Gree, said Serkan Toto, a Tokyo-based games industry consultant.

Indeed, in an age of mega-hits, a handful of decent games may no longer be enough.

“The strategy that if you churn out enough games, you will generate a hit is old school,” SoftBank Chief Executive Masayoshi Son said at a news conference shortly after SoftBank announced its plan to purchase of a controlling 51% stake in Supercell, the developer of mobile device hits “Clash of Clans” and “Hay Day.”

Games need to have the power to retain users for years, he said.

Founded in 1999 as an online e-commerce site, DeNA has come a long way since its founder Tomoko Namba had to convince worried mothers whose sons she had recruited that the business was legit. The company has also reinvented itself time and again, and even with the slowdown, logs double-digit profit margins. And DeNA has a habit of hunting new revenue streams for more pillars of growth, Ms. Namba said.

“Games will always be a large part of our business. But the company is and has always been looking at many ways to grow – there are so many possibilities,” she said on the sidelines of a talk given at the American Chamber of Commerce in Japan.